The crowd expects the dollar to crumble

Key News
??? Consumer spending in France jumped the most in seven years in August. (Bloomberg)
??? Key Reports (WSJ):
10:00a.m. Aug Chicago Fed Natl Activity Index. Previous: -0.12.
12:00p.m. Sept Philadelphia Fed Business Index. Previous: 18.5.
4:30p.m. Money Supply. For Sept 15.

Quotable

???Don't part with your illusions. When they are gone you may still exist, but you have ceased to live.???

Mark Twain

FX Trading ??� The crowd expects the dollar to crumble

With the Fed seemingly in the bag, the crowd has been looking for another good reason to sell the dollar??�and this was all they needed: ???The Federal Reserve Bank of Philadelphia said that its business conditions index, a gauge of the regional manufacturing sector's health, fell to a reading of negative 0.4 in September, compared with 18.5 in August,??? the Journal reported.

According to analysts, this proves the housing market is as big a drag on the US economy as many feared. The ???R??? word is now in play among the economic intelligentsia.

Well??�maybe. But slowdown seems more likely given the relative strength in the job market and ongoing evidence the US consumer is still doing okay.

But in the currency game, reality is neither here nor there, it??�s expectations that matter most, as George Soros explains:

???Market prices are always wrong in the sense that they present a biased view of the future. But distortion works in both directions: not only do market participants operate with a bias, but their bias can also influence the course of events. This may create the impression that markets anticipate future developments accurately, but in fact it is not present expectations that correspond to future events but future events that are shaped by present expectations.???

And presently, it seems, the crowd expects the dollar to crumble; on the view of slowing US growth (yesterday??�s manufacturing data and continued housing fears), a Fed that is done (with a subtle but growing chorus of ???next move a cut??? on R-word fears), a European Central Bank that will hike (on inflation fears as evidenced by ECB banking hawks) and the European economy is gaining momentum (as evidenced by French consumer spending today).

Maybe it all adds up to a very solid rationale regardless of what we think of the US consumer.

Jack Crooks, Black Swan Capital Black Swan Subscription-based Service